Various Gift and Death Taxes Everyone Should Know About

The way you manage your money during your lifetime can affect taxes that arise upon your death. Some of the first steps to knowing how to minimize or eliminate taxes are understanding how they apply to you and how you can take advantage of the IRS tax code. Here are some basics:

GIFT TAX

The gift tax is a federal rule meant to prevent people from avoiding estate taxes by giving away their money or property before they die. In general, if you give someone assets without receiving full value in return, that transfer may count as a taxable gift. Gift tax and estate tax are part of the same system, overseen by the IRS, and they share a single lifetime exemption, meaning large gifts during life reduce the amount you can pass tax-free at death (see “Federal Estate Tax Exclusion” below.)

 ANNUAL EXCLUSION (GIFTS)

The annual exclusion is the most practical exception to the gift tax rule explained above. It allows you to give up to a set dollar amount each year, per person, without tax, paperwork, or reducing your lifetime exemption. In 2025, that amount is $19,000 that can be given to an unlimited number of people by another person. Gifts that qualify for the annual exclusion are permanently removed from your estate, along with any future growth, which makes this a simple and effective way to reduce the size of your taxable estate over time. If you are part of a married couple, both of you can give $19,000 each to any number of other people.

 FEDERAL ESTATE TAX EXCLUSION

The federal estate tax exclusion is the amount of money or property you are allowed to pass on at death without owing federal estate tax. If the total value of your estate is below this exclusion amount, no federal estate tax is due. If it is above the exclusion, only the amount over the limit is potentially taxed, not the entire estate. The rule is administered by the IRS. In 2025, the exclusion amount is $13.99MM. The tax code will change, and so this number will change, sometimes annually. It can increase or decrease. A person’s year of death determines which exclusion amount will apply to their estate.

 This exclusion is lifetime-based, meaning it is shared with large taxable gifts you make while alive. Gifts that exceed the annual exclusion ($19,000 in 2025) reduce your remaining estate tax exclusion, dollar for dollar. Many estates never owe federal estate tax because the exclusion is relatively high, but it can change over time due to tax law updates, which is why estate planning often involves monitoring this threshold and using tools, such as lifetime gifts, to stay below it.

 GENERATION-SKIPPING TRANSFER TAX

The generation-skipping transfer (GST) tax is a federal tax designed to prevent families from avoiding estate taxes by passing wealth directly to grandchildren or later generations, instead of first to children. Without this rule, assets could skip a generation and avoid estate tax at the children’s level. The GST tax is overseen by the IRS and generally applies in addition to any gift or estate tax.

 Each person has a separate GST exemption that can be used to shield transfers to skip-generation beneficiaries from this tax. When properly allocated, often through trusts, assets and all their future growth can pass to grandchildren without triggering GST tax at each generation. If the exemption is not available or not allocated, the GST tax can apply at a high flat rate, making careful planning important when wealth is intended to benefit multiple generations.

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